The cryptocurrency world is constantly evolving, and anonymity and privacy issues are central to it. In an era where information is becoming an increasingly valuable asset, the ability to keep one’s transactions private has become overly important. One cryptocurrency that has put anonymity at the forefront is Monero (XMR). This digital asset utilizes advanced encryption technologies to ensure not only secure but also private transactions for its users. Let’s understand how Monero works and why its anonymity is so significant in today’s world.

Content

What is Monero?

• Characteristics and how the network works
• Ring Signatures and untraceability
• Ring Confidential Transactions (RingCT) and anonymity of the transaction amount
• Stealth Addresses and unlinkability

Monero scaling

• Tokenomics
• XMR issuance and distribution

Economics and usage

Delisting and reduction in value

LocalMonero exchange closure

What do experts say?

Project outlook

What is Monero?

While most cryptocurrencies are based on the ideals of decentralization and security, Monero is one of the few projects that maintains privacy and confidentiality. The currency’s eponymous blockchain, based on the Proof of Work (PoW) consensus algorithm, stands apart from “transparent” blockchains including Bitcoin and Ethereum. Monero is the only major decentralized cryptocurrency, each user of which is anonymous by default: the blockchain hides information about the sender, recipient, and transaction amount.

The history of Monero dates back to before the creation of Bytecoin, the first digital currency to utilize CryptoNote technology, launched in 2012. While Bytecoin was ultimately unsuccessful, it paved the way for the development of several popular “privacy coins,” including Monero. CryptoNote technology is a privacy-oriented protocol used to increase the anonymity and security of transactions. The developers of the Bytecoin project formed Bitmonero, which was later shortened to Monero.

Monero has been committed to privacy and anonymity since its inception, building on the foundation laid by Bytecoin’s CryptoNote technology. This has helped XMR become one of the leading privacy-focused cryptocurrencies on the market. After its release in 2014, Monero gained a strong community and evolved through the efforts of developers around the world. An important milestone was the introduction of Ring Signatures technology and the resulting scalability.

Characteristics and how the network works

First and foremost, the value of Monero lies in its unique architecture, which provides two key principles: untraceability and unlinkability of transactions. These properties are achieved through the Ring Signatures, Ring Confidential Transactions (RingCT), and Stealth Addresses protocols.

Ring Signatures and untraceability

Ring Signatures is the primary technology behind Monero. It allows a transaction to be signed in such a way that an outside observer cannot determine who the sender of the funds is. The principle of Ring Signatures is to create a “ring” of public keys, among which there is a valid sender’s key, but it is impossible to identify it. Thus, each transaction is masked between the others, creating a crowd effect in which it is impossible to distinguish a single participant.

Ring Confidential Transactions (RingCT) and the anonymity of the transaction amount

RingCT is an evolution of the Ring Signatures protocol. This protocol not only hides the sender but also the transaction amount. Before RingCT was introduced, the sender’s address and the transaction amount were hidden, but the amount of Monero transferred was visible. RingCT uses algebraic tricks to ensure that the amount remains private. At the same time, through sophisticated math, the network can verify the correctness of the transaction without having to disclose the amount.

Stealth Addresses and unlinkability

Stealth Addresses (one-time hidden addresses) is a technology that ensures the privacy of the recipient of the funds. When a transaction is created, a random one-time address is generated to which the funds will be sent. Thus, even if someone knows the public address of a Monero user, they will not be able to trace what funds were sent to it.

Monero mining

Monero uses a Proof of Work algorithm, but unlike bitcoin and many other cryptocurrencies, its algorithm focuses on the use of CPUs (central processing units). It makes mining accessible to a wide range of people, not just those with access to powerful specialized mining hardware.

Miners can decide whether they want to solo mine or to mine in a pool. Each method has its own advantages and disadvantages. However, the Monero Project encourages people to do solo mining using Monero software (GUI and CLI), as this type of independent mining is the most effective way to increase the security of the Monero network. Mining using P2Pool is also encouraged.

Source: getmonero

Monero scaling

Monero has no hard limit on block size and can scale according to the load of the network, solving a problem that has become central to many cryptocurrencies. Scaling can also refer to the ability to securely conduct certain types of intermediate transactions without interacting with the blockchain. Monero does not currently support proprietary off-chain solutions such as atomic swaps, as its privacy features do not allow for required features such as non-interactive return transactions or complex scripts. However, academic and industry research is ongoing and promising in this area.

Tokenomics

XMR issuance and distribution

Monero has an interesting system for issuing new coins. After an initial period of mining, when around 18,4 million XMR were created, the system has switched to what is known as “tail emission,” whereby miners are paid a fixed reward for each block found. This strategic decision was made to maintain incentives for mining and network security in the long term.

At the time of writing, the XMR exchange rate is $218 and its market capitalization exceeds $4 billion.

Economics and usage

Monero, like many other cryptocurrencies, is subject to market fluctuations. However, due to its focus on privacy, the coin has found a niche among users who need anonymous transactions.

Although Monero is often associated with illegal transactions, the vast majority of users use it for legitimate purposes. The globalized economy requires increased protection of personal data and payments, and Monero acts as a great solution. For example, companies can use Monero to record and protect internal transactions, minimize tax liabilities, and ensure customer security.

In countries with unstable political situations or economies, Monero can act as a means to protect people’s assets. In situations of high inflation or financial control by government agencies, coins provide a way to store and transfer funds without attracting unwanted attention.

Delisting and reduction in value

In February 2024, leading crypto exchange Binance announced its decision to delist Monero along with other tokens including Aragon (ANT), Multichain (MULTI), and Vai (VAI). The move caused Monero’s value to plummet by 15% from $161,7 to $140,6.

As a result of the delisting, Binance removed four trading pairs: XMR/BTC, XMR/ETH, XMR/USDT, and XMR/BNB on February 20, 2024. The exchange specified that all trading orders associated with these pairs were automatically deleted after trading in each respective pair ceased. In addition, the withdrawal of these tokens ceased to be supported after May 20, 2024. In an effort to mitigate potential problems for Monero holders, Binance said at the time that after May 21, XMR could still be converted into stablecoins on behalf of users and credited to their accounts.

In a statement, representatives of the exchange also cited the reason behind the delisting:

“When a coin or token no longer meets these standards or the industry landscape changes, we conduct a more in-depth review and potentially delist it. Our priority is to ensure the best services and protections for our users while continuing to adapt to evolving market dynamics.”

Crypto exchange Kraken has also announced that it will stop supporting Monero for customers in Ireland and Belgium. The exchange published a notice that XMR trading and deposits will cease as of May 10. The announcement stated that all margin trading positions must be closed before this deadline. Otherwise, Kraken will automatically close the positions. The exchange warned that it will completely exclude Monero from its platform on June 10, and for users with XMR tokens remaining in their accounts after the deadline, there will be an automatic conversion to BTC.

The platform later announced that it would cease Monero transactions for European users, including all coin trading pairs, starting October 31. According to the official statement, Kraken will allow customers to make withdrawals until 15:00 UTC on December 31. After the said deadline, all remaining XMR assets will be automatically converted to bitcoin at the current market rate. The exchange guarantees the return of the converted funds to BTC to the respective owners no later than January 6, 2025.

This decision is a result of recent developments in the European Union that prohibit crypto asset service providers (CASPs) from providing accounts to anonymous users or using privacy-oriented tokens.

Earlier in December 2023, the OKX crypto exchange announced it was delisting XMR and other anonymous cryptocurrencies, citing their failure to meet “our listing criteria.”

LocalMonero exchange closure

P2P crypto exchange LocalMonero, which was designed to trade XMR, announced its closure without giving specific reasons. The statement only said that after seven years of operation, the exchange had to cease operations due to “a combination of internal and external factors.”

The platform’s management said that the closure process will be completed within six months, and the registration of new users has already been suspended. Trading on the exchange was halted on May 14, and the website shut down completely on November 7. Users were able to delete their data on their own before the exchange was completely shut down. This feature is only available in the web version of the website.

The project’s team is confident that Monero has a bright future ahead of it, regardless of whether LocalMonero works or not.

What do experts say?

Some members of the cryptocurrency community see Binance’s decision to delist Monero as a sign of the exchange’s developing problems. Many recalled the platform’s problems when Binance faced increased scrutiny from global regulators and its founder Changpeng Zhao pleaded guilty to money laundering and agreed to pay a $4,3 billion fine to the US Securities and Exchange Commission (SEC). Crypto trader John Brown commented on the situation as follows:

“While bad for Monero, I mainly see this delisting as a sign of the slow demise of Binance.”

Trader Daniel Nita suggested in a post on platform X (formerly Twitter) that the Monero case could be a harbinger of a trend where altcoins will be mostly traded on decentralized exchanges (DEXs) or not traded at all. He believes that in the current realities, “no one cares about privacy and decentralization.”

Project outlook

Monero intends to continue to focus on improving privacy technologies. Given the tightening of regulatory measures for cryptocurrencies in many countries, it can be assumed that the demand for Monero will only increase.

Additionally, the cryptocurrency faces many technological challenges, especially in light of increased competition from other privacy-oriented coins. However, constant development and community support make Monero one of the most promising privacy-oriented cryptocurrency projects.

The project’s tokenomics and prospects indicate that Monero has every chance to maintain its position in the digital world and even strengthen it amid the growing interest in private transactions.

Even though Monero has been excluded from listing by a number of major exchanges and the price of the coin has become lower, interest in it has not disappeared. The situation around XMR emphasizes the constant search for a balance between financial privacy and government control. While concerns about illegal activity need attention, a complete ban on confidential coins raises ethical and philosophical questions. Finding a balanced approach that protects both security and individual rights may be of paramount importance in the long run as the field of digital assets is constantly evolving.